Tar sands industry faces existential $246 billion loss -- Gregory McGann - 27th November 2014 - ECOLOGIST The exploitation of Canadas tar sands is more than just an environmental catastrophe, writes Gregory McGann. Its also an turning into an economic disaster, with massive investments at risk as falling oil prices leave the tar sands stranded. One of the most destructive forms of oil production is financially nonsensical and faces total collapse, according to a new report by the Carbon Tracker Initiative (CTI), Oil Sands: Fact sheets. The report suggests that that investors are being misled about the economic viability of oil sands production, which is doing irreparable damage to the pristine boreal forests of northwestern Canada. CTI, an environmentally-aware financial analysis company, argues that future oil sands projects, besides being environmentally disastrous, are also financially catastrophic and are leading their investors towards serious loss. Despite the recent dramatic fall in oil prices, the companies have failed to factor in the risk of further falls in prices. Oil sands projects, with their high productions costs, are especially vulnerable as oil price declines can easily wipe out all their profitability. The cost pressures facing the oil industry show few signs of abating, states the report - yet oil companies simply refuse to recognize them. An industry at odds with the facts London-based CTI have applied their own financial model to the expensive production oil sands process using data from Rystad, a Norwegian energy-analysis firm. The results indicate that fossil fuel companies are misleading potential investors by understating the risks of lower oil prices, higher environment clean up charges and new greenhouse gas regulations. CTI calculate that 92% of future oil sands production will only viable if oil prices are $95 per barrel. However, prices stand at only $85, so producers are losing money for every barrel of oil they sell - unless they are cushioned by existing higher-priced contracts, which will sooner or later expire. The recent decline has thus changed the whole dynamic for regions of marginal production - most noticeably the oil sands of Alberta - and investors are facing significant losses unless oil prices pick up rapidly. An existential threat? Remarkably, the companies have failed to answer this existential problem that could close down the entire tar sands operation. That may be because 20 companies have committed, collectively, $246 billion to oil sands. Of these, the greatest capital expenditure has come from Canadian Natural Resources (CNRL), whose $31.6 billion investments were made on financial predictions that now seem wildly optimistic. Such financial predictions could result in wasted capital and stranded assets on a huge scale. The same applies to runners up Suncor Energy with $22.2 billion invested in tar sands, Athabasca Oil Sands Corporation with $21.7 billion, and Shell with $21.4 billion. ... -- READ MORE ...
Posted on: Mon, 01 Dec 2014 23:34:27 +0000
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